Early-stage investors give their views on today's volatile environment for oncology startups.

If you're an academic scientist who wants to spin off one of your discoveries into a biotechnology firm, what will venture capitalists (VC) and other early-stage investors tell you about today's volatile environment for drug discovery? Here are 8 key points from some prominent players.

1. VCs look for major scientific advances. “Oncology, maybe more than any other area of biomedicine, has been plagued by a lot of familiar approaches,” says Alan Crane, a general partner at Polaris Venture Partners in Waltham, MA. “We are big believers in breakthrough science. We believe the goal of VCs is to invest in really novel ideas that can make a huge difference in the world.”

“The research has to be exciting and beneficial,” agrees Bruce Booth, a partner in the Life Sciences group at Atlas Venture in Cambridge, MA. “Digging in the same field won't transform the disease, but the trouble in cancer is that there are a huge chunk of people chasing a small handful of targets.”

2. Drug cost-effectiveness is a serious concern. “Pharmas definitely figure in their calculus what the world will look like in the long term,” Booth says. “In 2020 or 2022, the health economics won't support therapies that do marginal things; they have to really transform the survival curves.”

“If a drug extends survival by 3 months, payers increasingly will look at that and say, ‘Is this benefit cost-effective?’” says Stewart Lyman, PhD, of Lyman BioPharma Consulting in Seattle, who assesses cancer treatment technologies and science for investors. “And if there are 3 different drugs, at $100,000 each per year, and the benefits are only additive, who will be able to pay for that expense?”

3. VCs follow the people. “Just as you would do due diligence with your science, do it with the people you work with in business,” advises Mark Levin, cofounder and partner in Third Rock Ventures of Boston and San Francisco. “Don't ever underestimate the quality of people you need to make your startup happen.”

4. Don't expect passive investors. Early-stage investors come in many forms, and one successful approach in drug discovery is totally hands-on. “Cancer is our top investment, and we build most of our companies from scratch,” says Levin. “We find areas that are exciting and that we know Big Pharma, Big Biotech, Big Device, and Big Diagnostic firms are interested in, and then we bring together the great people. We work together and develop a plan over a couple of years before we start up the company. Maybe we'll be the chief executive officer or the chief scientific officer or the chief business officer. We'll eventually replace ourselves and bring in additional venture capitalists.”

5. No single structure fits all firms. “About half of our companies develop drug discovery platforms, which give a number of shots on goal,” notes Booth, but other startups may focus on a single agent.

“You can do the early part of this without having to build a huge company,” he stresses. “Everyone would like to build the next Amgen, but there are companies that have less than 10 full-time equivalent employees that can take academic research out of the lab, move it into the clinic, and have real impact on patients. The democratization of biotech is happening, because the ecosystem is just so much richer today in terms of the number, the depth, and the diversity of clinical research organizations, clinical partners, and academic medical centers that are doing translational work.”

6. Big Pharma is hungry. “Over the last decade, Pharma has really tried to outsource discovery and innovation to a much greater extent than before, and there's a lot more opportunities for us to partner,” says Crane. “Pharma has quite an appetite for opportunities that can really make a difference for patients and create a lot of value.”

“Big Pharma, which has been doing most of the purchasing of startup firms, is desperate,” says Lyman. “What they've been doing just isn't working anymore. All of these companies are sitting on huge war chests, and some of the valuations that have been put on young companies have been just crazy in the last few years.”

7. Academics need to think differently and early. “We spend a lot of time helping researchers think about the opportunities they're working on at a very early stage, long before the company is born,” says Crane. “People who go down the entrepreneurial road are always shocked at how complicated it is to build a company and deliver a drug. A lot of the heavy lifting and hard work come after the fundamental discovery is made.”

At the start, “academics may not understand the extraordinary amounts of money and effort that are necessary, how long it takes, and how critical the right people are,” says Levin. “We like to start up companies with a group of people with complementary areas of research, different ideas, and different opinions, who are willing to challenge themselves and willing to listen to people.”

8. Researchers should study their career paths. If you're in academia, you need to figure out if you want to leave your position, or hold onto the position and work at the company simultaneously, says Lyman. If it's the latter, make sure that both organizations allow that, he says.

“You will be associated with a company that is looking to be acquired within a very short period of time, just a few years,” he adds. “There may or may not be a position for you in the acquiring company. You've got to think, what will you do next?” —Eric Bender